Notice of Demand
Introduction
A Notice of Demand is issued by the Assessing Officer (AO) when an assessee is liable to pay tax, interest, penalty, fine, or any other sum under the Income-tax Act.
When is a Notice of Demand Issued?
- A tax, interest, penalty, or other sum becomes due only when the Assessing Officer serves a notice of demand.
- Intimation of tax payable in return or TDS/TCS processing is deemed a notice of demand.
- If NCLT/NCLAT/Supreme Court reduces a tax demand raised underSection 156in insolvency cases, Section 156A requires the AO to revise the demand accordingly.
Time Limits
- Issuance: No specific time limit, but the notice must be served within a reasonable time.
- Payment:
o General cases – Within 30 days unless a shorter period is specified.
o ESOP taxation (for eligible start-ups) – Within 14 days from the earliest of:
Expiry of 48 months from the end of the assessment year in which ESOPs were allotted.
At the date of sale of shares.
At the date the assessee ceases employment.
Format of Demand Notice
The notice of demand for the tax liability payable on assessment shall be issued in Form No. 7 and demand notice for payment of advance tax liability shall be issued in Form No. 28.
Is a Demand Notice Mandatory for Recovery?
- Yes, recovery proceedings can only begin after serving a demand notice.
- If no notice is issued, the assessee cannot be treated as a defaulter.
Consequences of Non-Payment
- The assessee is deemed an assessee-in-default.
- Interest underSection 220and penalty under Section 221 may be imposed.
Faceless Issuance of Demand Notice
- Section 157Aprovides for a Faceless Scheme for issuing Notices of Demand electronically.